00a0255p.06

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
3XUVXDQW WR 6L[WK &LUFXLW 5XOH
(/(&7521,& &,7$7,21 )(' $SS 3 WK &LU
)LOH 1DPH DS
81,7('67$7(6&28572)$33($/6
)257+(6,;7+&,5&8,7
BBBBBBBBBBBBBBBBB
686$1 / +26.,16
3ODLQWLII$SSHOODQW
Y
2$./$1' &2817< 6+(5,))¶6
'(3$570(17DQG7+(
&2817< 2) 2$./$1'
'HIHQGDQWV$SSHOOHHV
;!

1
1R
$SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
IRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDW)OLQW
1R²3DXO9*DGROD'LVWULFW-XGJH
$UJXHG-XQH
'HFLGHGDQG)LOHG-XO\
%HIRUH-21(60225(DQG*,/0$1&LUFXLW-XGJHV
BBBBBBBBBBBBBBBBB
&2816(/
$5*8(' -RVHSK & %LUG 67$5. 5($*$1
),11(57< 7UR\ 0LFKLJDQ IRU $SSHOODQW 5LFN -
3DWWHUVRQ 3277(5 &$51,$. $1'(5621
'H$*267,12 $XEXUQ +LOOV 0LFKLJDQ IRU $SSHOOHHV
21 %5,() -RVHSK & %LUG -HIIUH\ - )OHXU\ 67$5.

-- 1 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
5($*$1 ),11(57< 7UR\ 0LFKLJDQ IRU $SSHOODQW
5LFN - 3DWWHUVRQ 3277(5 &$51,$. $1'(5621
'H$*267,12$XEXUQ+LOOV0LFKLJDQIRU$SSHOOHHV
BBBBBBBBBBBBBBBBB
23,1,21
BBBBBBBBBBBBBBBBB
.$5(1 1(/621 0225( &LUFXLW -XGJH 3ODLQWLII
DSSHOODQW 6XVDQ / +RVNLQV ZKR ZDV D GHSXW\ ZLWK WKH
2DNODQG &RXQW\ 6KHULII¶V 'HSDUWPHQW ZDV ILUHG DIWHU VKH
VXIIHUHGDQLQMXU\WKDWUHQGHUHGKHUXQDEOHWRUHVWUDLQLQPDWHV
6KH EURXJKW VXLW DJDLQVW WKH 6KHULII¶V 'HSDUWPHQW DQG WKH
&RXQW\ RI 2DNODQG KHUHLQDIWHU UHIHUUHG WR FROOHFWLYHO\ DV
³GHIHQGDQWV´ DVVHUWLQJ FODLPV XQGHU ERWK WKH $PHULFDQV
ZLWK'LVDELOLWLHV$FWDQG7LWOH9,,7KHGLVWULFWFRXUWJUDQWHG
VXPPDU\MXGJPHQWWRWKHGHIHQGDQWVDQGIRUWKHIROORZLQJ
UHDVRQVZH$)),50
,%$&.*5281'
6XVDQ+RVNLQVZRUNHGIRUWKH2DNODQG&RXQW\6KHULII¶V
'HSDUWPHQW ³2&6'´ IURP XQWLO KHU WHUPLQDWLRQ LQ
6KHEHJDQKHUFDUHHUDVDGLVSDWFKHUDWWKH2DNODQG
&RXQW\ -DLO ,Q +RVNLQV VXFFHVVIXOO\ WHVWHG IRU WKH
SRVLWLRQ RI GHSXW\ VKHULII OHYHO RQH ³GHSXW\ RQH´
+RVNLQV¶V RULJLQDO SODFHPHQW DV D GHSXW\ RQH ZDV LQ WKH
ZRPHQ¶V GLYLVLRQ DW WKH 2DNODQG &RXQW\ -DLO ,Q
+RVNLQV ZDV DVVLJQHG WR 2DNODQG &RXQW\ &LUFXLW &RXUW
GHWHQWLRQZKHUHKHUGXWLHVLQFOXGHGWUDQVSRUWLQJSULVRQHUV
IURPWKHMDLOWRGHWHQWLRQ)URPXQWLOKHUWHUPLQDWLRQLQ
+RVNLQV ZDV DVVLJQHG WR WKH 1RYL 'LVWULFW &RXUW D
SRVLWLRQ WKDW DOVR LQYROYHG WKH WUDQVSRUWDWLRQ RI LQPDWHV
+RVNLQV¶V SRVLWLRQV DW ERWK WKH FLUFXLW DQG GLVWULFW FRXUWV
LQYROYHG GDLO\ FRQWDFW ZLWK SULVRQHUV DQG WKH SRWHQWLDO IRU
SK\VLFDOFRQIURQWDWLRQ
2Q$XJXVW+RVNLQVVXIIHUHGVHYHUHQRQZRUN
UHODWHGLQMXULHVZKHQDKRUVHIHOORQKHU+RVNLQV¶VSULPDU\
FDUH SK\VLFLDQ 'U ( 3DWULFN 0LWFKHOO LQGLFDWHG WKDW

-- 2 of 12 --

1R +RVNLQVY2DNODQG&RXQW\HWDO
+RVNLQV¶VLQMXULHVLQFOXGHGD³QRQGLVSODFHGIUDFWXUHRIWKH
LQIHULRUDQGVXSHULRUSXELFUDPXVRQWKHOHIWDQGIUDFWXUHG
ELODWHUDOFODYLFOHV´-RLQW$SSHQGL[ ³-$´ DW 0LWFKHOO
/HWWHU $VDUHVXOWRIWKHVHPXOWLSOHLQMXULHV+RVNLQVZDV
KRVSLWDOL]HG IRU WZR DQG D KDOI ZHHNV DQG XQGHUZHQW D
UHFXSHUDWLRQSHULRGRID\HDUDQGDKDOI+RVNLQVZDVWUHDWHG
E\WZRGLIIHUHQWGRFWRUVDQGREWDLQHGOHWWHUVUHVWULFWLQJKHU
DFWLYLW\IURPERWK2Q-XO\'U:LOOLDP%ULDD
SXOPRQDU\VSHFLDOLVWZURWHDOHWWHUVWDWLQJWKDW+RVNLQV³LV
DEOHWRUHWXUQWRZRUNKRZHYHUVKHVKRXOGQRWEHOLIWLQJRU
HQJDJLQJ LQ DQ\ DFWLYLW\ WKDW ZRXOG MDU KHU FKHVW VXFK DV
VKRRWLQJDVKRWJXQRUJHWWLQJLQWRDVLWXDWLRQLQZKLFKVKH
FRXOGJHWKLWLQWKHFKHVW´-$DW %ULD/HWWHU 2Q-XO\
'U0LWFKHOODWWDFKHGDGLVDELOLW\FHUWLILFDWHWR'U%ULD¶V
OHWWHUWKHFHUWLILFDWHLQGLFDWHGWKDW+RVNLQVZDVUHVWULFWHGWR
OLJKW ZRUN GXWLHV WKDW GLG QRW LPSDFW KHU DQWHULRU FKHVW RU
VKRXOGHUV'U0LWFKHOODOVRZURWHDOHWWHURQ6HSWHPEHU
WKDWVWDWHG
>+RVNLQV@ KDV UHVWULFWLRQV RI QR OLIWLQJ SXVKLQJ RU
SXOOLQJ RYHU SRXQGV QR XVH RI VKRWJXQ DQG QR
UHVWUDLQLQJRILQPDWHV6KHVWLOOH[SHULHQFHVSDLQDQG
GHFUHDVHGUDQJHRIPRWLRQ6KHKDVVHYHUHOLPLWDWLRQRI
KHUIXQFWLRQDOFDSDFLW\DQGQHHGVDVHGHQWDU\SRVLWLRQ
+HUPRWLYDWLRQDQGUHKDELOLWDWLRQSRWHQWLDOLVH[FHOOHQW
+HUSURJQRVLVLVJXDUGHG
,GRQRWEHOLHYHWKDW6XVDQZLOOHYHUEHDEOHWRUHVXPH
IXOO GXW\ DV D 'HSXW\ ZLWK 2DNODQG &RXQW\ 6KHULII¶V
'HSDUWPHQW 6KH ZLOO SUREDEO\ QHHG SHUPDQHQW
UHVWULFWLRQV RI FHUWDLQ DFWLYLWLHV ZKLFK ZRXOG EH
FRQVLGHUHGGXWLHVRID'HSXW\6KHULII
-$DW 0LWFKHOO/HWWHU
$IWHUUHFHLYLQJ'U%ULD¶V-XO\OHWWHUZLWKWKHDWWDFKHG
GLVDELOLW\FHUWLILFDWH+RVNLQVWRRNWKHPWR&DURO9DQ/HXYHQ
DQ HPSOR\HH UHFRUGV VSHFLDOLVW IRU WKH &RXQW\ $OWKRXJK
+RVNLQVH[SUHVVHGDGHVLUHWRUHWXUQWRZRUN9DQ/HXYHQWROG
KHUWKDWVKHFRXOGQRWEHFDXVHQROLJKWGXW\SRVLWLRQVZHUH
DYDLODEOH 7KH &RXQW\ WKHQ FRQGXFWHG D SUHWHUPLQDWLRQ

-- 3 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
KHDULQJRQ1RYHPEHU$WWKHKHDULQJ0DMRU7KRPDV
4XLVHQEHUU\ WKH &KLHI RI 6WDII DW 2&6' LQGLFDWHG WKDW
+RVNLQVZDVEHLQJWHUPLQDWHGEHFDXVHKHUZRUNUHVWULFWLRQV
ZHUHLQFRPSDWLEOHZLWKWKHGXWLHVRIDGHSXW\RQH+RVNLQV
ZDVDVNHGLIVKHZDVLQWHUHVWHGLQDMREDVDGLVSDWFKHURUD
ERRNLQJFOHUN²MREVWKDWGLGQRWUHTXLUHLQPDWHFRQWDFWEXW
WKDWDOVRLQYROYHGDVLJQLILFDQWSD\FXW²DQGVKHUHSOLHGWKDW
VKHZDVQRWLQWHUHVWHG+RVNLQVVWDWHG³%DVLFDOO\,¶GUDWKHU
MXVWEHD'HSXW\´-$DW$IWHUWKHKHDULQJWKHKHDULQJ
RIILFHULVVXHGDGHFLVLRQDIILUPLQJ+RVNLQV¶VWHUPLQDWLRQ
2Q-XQH+RVNLQVILOHGVXLWLQWKH8QLWHG6WDWHV
'LVWULFW&RXUWIRUWKH(DVWHUQ'LVWULFWRI0LFKLJDQDVVHUWLQJ
FODLPV XQGHU ERWK WKH $PHULFDQV ZLWK 'LVDELOLWLHV $FW
³$'$´ 86&†HWVHTDQG7LWOH9,,RIWKH&LYLO
5LJKWV$FWRI86&†HHWVHT2Q0DUFK
WKHGLVWULFWFRXUWJUDQWHGWKHGHIHQGDQWV¶ PRWLRQIRU
VXPPDU\MXGJPHQW7KHGLVWULFWFRXUWGLVPLVVHG+RVNLQV¶V
$'$FODLPRQWKHEDVLVWKDWVKHIDLOHGWRHVWDEOLVKWKDWVKH
KDGDGLVDELOLW\ZLWKLQWKHPHDQLQJRIWKH$FW$OWHUQDWLYHO\
WKHGLVWULFWFRXUWUHDVRQHGWKDW+RVNLQVKDGQRWVDWLVILHGWKH
VHFRQGHOHPHQWRIKHUSULPDIDFLHFDVHEHFDXVHVKHKDGQRW
HVWDEOLVKHG WKDW VKH ZDV TXDOLILHG WR SHUIRUP WKH HVVHQWLDO
IXQFWLRQV RI WKH MRE ZLWK UHDVRQDEOH DFFRPPRGDWLRQ
+RVNLQVDOVREURXJKWDGLVSDUDWHWUHDWPHQWFODLPXQGHU7LWOH
9,, DOOHJLQJ WKDW 2&6' KDG SURYLGHG PDOH GHSXWLHV WKH
RSSRUWXQLW\WRZRUNLQOLJKWGXW\GHSXW\SRVLWLRQVIROORZLQJ
GLVDEOLQJLQMXULHV7KHGLVWULFWFRXUWGLVPLVVHGWKLVFODLPRQ
WKHEDVLVWKDW+RVNLQVKDGQRWHVWDEOLVKHGDSULPDIDFLHFDVH
RIJHQGHUGLVFULPLQDWLRQ+RVNLQVWLPHO\DSSHDOHGWKHGLVWULFW
FRXUW¶VMXGJPHQW
,,$1$/<6,6
:H UHYLHZ GH QRYR D GLVWULFW FRXUW¶V JUDQW RI VXPPDU\
MXGJPHQW6HH(UFHJRYLFKY*RRG\HDU7LUH 5XEEHU&R
)G WK&LU 6XPPDU\MXGJPHQWLV
SURSHURQO\ZKHQWKHUHLVQRGLVSXWHDVWRDPDWHULDOTXHVWLRQ
RIIDFWDQGRQHSDUW\LVHQWLWOHGWRDMXGJPHQWDVDPDWWHURI
ODZ 6HH )(' 5 &,9 3 F 9LHZLQJ DOO IDFWV DQG
1R +RVNLQVY2DNODQG&RXQW\HWDO
ZHUHFRPSDUDEOHWRKHULQDOOUHOHYDQWDVSHFWVKHU7LWOH9,,
FODLPZDVSURSHUO\GLVPLVVHG
,,,&21&/86,21
)RUWKHIRUHJRLQJUHDVRQVZH$)),50WKHGLVWULFWFRXUW¶V
JUDQWRIVXPPDU\MXGJPHQW

-- 4 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
E\WKHGHIHQGDQWVIRUKHUWHUPLQDWLRQWKHGLVWULFWFRXUWVKRXOG
KDYHDQVZHUHGWKHTXHVWLRQRIZKHWKHU+RVNLQVZDVTXDOLILHG
IRUWKHSRVLWLRQRIGHSXW\RQHZLWKRXWFRQVLGHUDWLRQRIWKLV
UHDVRQ:KHQSURSHUO\DQDO\]HGLWLVFOHDUWKDW+RVNLQVKDV
HVWDEOLVKHGE\DSUHSRQGHUDQFHRIWKHHYLGHQFHWKDWVKHLV
TXDOLILHGIRUWKHSRVLWLRQ
+RVNLQVKDVQRWKRZHYHUPHWKHUEXUGHQRIHVWDEOLVKLQJ
WKDWVKHZDVWUHDWHGGLIIHUHQWO\IURPVLPLODUO\VLWXDWHGPDOH
GHSXWLHV $ SODLQWLII ³QHHG QRW GHPRQVWUDWH DQ H[DFW
FRUUHODWLRQ ZLWK WKH HPSOR\HH UHFHLYLQJ PRUH IDYRUDEOH
WUHDWPHQW LQ RUGHU IRU WKH WZR WR EH FRQVLGHUHG μVLPLODUO\
VLWXDWHG¶´KRZHYHUWKHSODLQWLIIDQGWKHFRPSDUDEOHPXVWEH
VLPLODULQDOOUHOHYDQWDVSHFWV(UFHJRYLFK)GDW
:HFRQFOXGHWKDW+RVNLQVKDVQRWPDGHWKLVVKRZLQJ
,QKHUEULHI+RVNLQVDUJXHVWKDWHOHYHQPDOHGHSXWLHV³DOO
VXIIHUHGGLVDEOLQJLQMXULHV DQGDWOHDVWIRUVRPHSHULRGRI
WLPH ZHUH XQDEOH WR SHUIRUP WKH HVVHQWLDO IXQFWLRQV RI D
GHSXW\´ DQG VKH FODLPV WKDW WKHVH PHQ ZHUH DOO
DFFRPPRGDWHGE\2&6'$SSHOODQW¶V%UDW,QKHU
GHSRVLWLRQKRZHYHU+RVNLQVZDVQRWDEOHWRLGHQWLI\DQ\
GHSXW\ ZKR ZDV SHUPLWWHG WR FRPH EDFN WR ZRUN ZLWK
GRFWRU¶VUHVWULFWLRQV,QKLVGHSRVLWLRQ0DMRU4XLVHQEHUU\
LGHQWLILHG ILYH PDOH GHSXWLHV ZKR ZHUH DFFRPPRGDWHG
WHPSRUDULO\ ZKLOH KDYLQJ UHVWULFWLRQV IURP WKHLU GRFWRUV
+RZHYHU WKHVH PHQ ZHUH QRW OLNH +RVNLQV SHUPDQHQWO\
UHVWULFWHGIURPSHUIRUPLQJDQHVVHQWLDOIXQFWLRQRIWKHGHSXW\
RQHSRVLWLRQ$OWKRXJK+RVNLQVQHHGQRWSURYHWKDWWKHVH
ILYHPHQZHUHLGHQWLFDOWRKHULQHYHU\UHVSHFWWKHH[SHFWHG
GXUDWLRQRIGLVDELOLW\LVUHOHYDQWIRUSXUSRVHVRIKHUFODLP
)XUWKHUPRUHQRQHRIWKHPHQLGHQWLILHGE\+RVNLQVKDGD
UHVWULFWLRQ VLPLODU WR KHUV ZKLFK SUHFOXGHG KHU IURP
SHUIRUPLQJDQHVVHQWLDOIXQFWLRQRIWKHGHSXW\RQHSRVLWLRQ
7KUHHRIWKHPHQZHUHWHPSRUDULO\WDNHQRIIURDGSDWUROGXW\
DQGRQHZDVUHVWULFWHGIURPFDUU\LQJDKDQGJXQEXW0DMRU
4XLVHQEHUU\ WHVWLILHG WKDW VRPH GHSXW\ SRVLWLRQV GR QRW
UHTXLUHGULYLQJDQGWKDWPRVWGRQRWUHTXLUHWKHFDUU\LQJRID
KDQGJXQ %HFDXVH +RVNLQV KDV QRW VKRZQ WKDW WKHVH PHQ
1R +RVNLQVY2DNODQG&RXQW\HWDO
LQIHUHQFHVGUDZQWKHUHIURPLQWKHOLJKWPRVWIDYRUDEOHWRWKH
QRQPRYDQW ZH PXVW GHWHUPLQH ZKHWKHU WKH HYLGHQFH
SUHVHQWHGLVVXFKWKDWDUHDVRQDEOHMXU\FRXOGILQGIRUWKDW
SDUW\6HH0DWVXVKLWD(OHF,QGXV&RY=HQLWK5DGLR&RUS
86
$$'$&ODLP
7KH$'$SURKLELWVFRYHUHGHPSOR\HUVIURPGLVFULPLQDWLQJ
³DJDLQVWDTXDOLILHGLQGLYLGXDOZLWKDGLVDELOLW\EHFDXVHRIWKH
GLVDELOLW\ RI VXFK LQGLYLGXDO LQ UHJDUG WR MRE DSSOLFDWLRQ
SURFHGXUHV WKH KLULQJ DGYDQFHPHQW RU GLVFKDUJH RI
HPSOR\HHVHPSOR\HHFRPSHQVDWLRQMREWUDLQLQJDQGRWKHU
WHUPVFRQGLWLRQVDQGSULYLOHJHVRIHPSOR\PHQW´86&
† D 8QGHUWKH$'$GLVFULPLQDWLRQLQFOXGHV³QRW
PDNLQJUHDVRQDEOHDFFRPPRGDWLRQVWRWKHNQRZQSK\VLFDORU
PHQWDOOLPLWDWLRQVRIDQRWKHUZLVHTXDOLILHGLQGLYLGXDOZLWK
D GLVDELOLW\ ZKR LV DQ DSSOLFDQW RU HPSOR\HH XQOHVV VXFK
FRYHUHG HQWLW\ FDQ GHPRQVWUDWH WKDW WKH DFFRPPRGDWLRQ
ZRXOG LPSRVH DQ XQGXH KDUGVKLS RQ WKH RSHUDWLRQ RI WKH
EXVLQHVV RI VXFK FRYHUHG HQWLW\´ 86&
† E $ $³TXDOLILHGLQGLYLGXDOZLWKDGLVDELOLW\´
LVGHILQHGDV³DQLQGLYLGXDO ZLWK DGLVDELOLW\ZKRZLWKRU
ZLWKRXWUHDVRQDEOHDFFRPPRGDWLRQFDQSHUIRUPWKHHVVHQWLDO
IXQFWLRQV RI WKH HPSOR\PHQW SRVLWLRQ WKDW VXFK LQGLYLGXDO
KROGVRUGHVLUHV´86&†
,QWKHLQVWDQWFDVHLWLVXQGLVSXWHGWKDW+RVNLQVZDVILUHG
EHFDXVH RI KHU LQDELOLW\ WR UHVWUDLQ LQPDWHV ³>:@KHQ DQ
HPSOR\HUDGPLWVWKDWLWUHOLHGXSRQDGLVDELOLW\LQPDNLQJDQ
DGYHUVHHPSOR\PHQWGHFLVLRQDQHPSOR\HHPD\HVWDEOLVKD
SULPD IDFLH FDVH RI HPSOR\PHQW GLVFULPLQDWLRQ XQGHU WKH
$'$E\VKRZLQJWKDWKHRUVKH KDVDGLVDELOLW\DQG LV
μRWKHUZLVH TXDOLILHG¶ IRU WKH SRVLWLRQ GHVSLWH WKH GLVDELOLW\
HLWKHU μ D ZLWKRXW DFFRPPRGDWLRQ IURP WKH HPSOR\HU
E ZLWKDQDOOHJHGμHVVHQWLDO¶MREUHTXLUHPHQWHOLPLQDWHGRU
F ZLWKDSURSRVHGUHDVRQDEOHDFFRPPRGDWLRQ¶´+DPOLQY
&KDUWHU7RZQVKLSRI)OLQW)G WK&LU
TXRWLQJ 0RQHWWH Y (OHFWURQLF 'DWD 6\V &RUS )G
WK&LU $IWHUWKHHPSOR\HHKDVPDGH

-- 5 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
$V WKH 6XSUHPH &RXUW H[SODLQHG LQ 6XWWRQ Y 8QLWHG $LU /LQHV ,QF
86 DOWKRXJK QR DJHQF\ KDV EHHQ GHOHJDWHG DXWKRULW\ WR
LVVXH UHJXODWLRQV LPSOHPHQWLQJ WKH JHQHUDOO\ DSSOLFDEOH SURYLVLRQV RI WKH
$'$ ² LQFOXGLQJ WKH WHUP ³GLVDELOLW\´ ² WKH ((2& KDV QRQHWKHOHVV
LVVXHG UHJXODWLRQV SURYLGLQJ JXLGDQFH UHJDUGLQJ WKH SURSHU LQWHUSUHWDWLRQ
RI WKDW WHUP 6HH LG DW %HFDXVH QHLWKHU SDUW\ WR WKH LQVWDQW DSSHDO
KDV FKDOOHQJHG WKH YDOLGLW\ RI WKHVH ((2& UHJXODWLRQV ZH DVVXPH WKHLU
YDOLGLW\ 6HH LG DW
WKLVVKRZLQJ³>W@KHHPSOR\HUZLOOEHDUWKHEXUGHQRISURYLQJ
WKDW D FKDOOHQJHG MRE FULWHULRQ LV HVVHQWLDO DQG WKHUHIRUH D
EXVLQHVVQHFHVVLW\RUWKDWDSURSRVHGDFFRPPRGDWLRQZLOO
LPSRVHDQXQGXHKDUGVKLSXSRQWKHHPSOR\HU´0RQHWWH
)GDW
:KHWKHU+RVNLQVLV'LVDEOHG:LWKLQWKH0HDQLQJ
RIWKH$'$
7KHGLVWULFWFRXUWGHWHUPLQHGEDVHGXSRQ+RVNLQV¶VRZQ
WHVWLPRQ\WKDWVKHGLGQRWHVWDEOLVKWKDW VKH ZDVGLVDEOHG
ZLWKLQ WKH PHDQLQJ RI WKH $'$ 7KH VWDWXWH GHILQHV
³GLVDELOLW\´ DV ³ $ D SK\VLFDO RU PHQWDO LPSDLUPHQW WKDW
VXEVWDQWLDOO\OLPLWVRQHRUPRUHRIWKHPDMRUOLIHDFWLYLWLHVRI
VXFKLQGLYLGXDO % DUHFRUGRIVXFKDQLPSDLUPHQWRU &
EHLQJUHJDUGHGDVKDYLQJVXFKDQLPSDLUPHQW´86&
† ,W LV XQFRQWHVWHG WKDW +RVNLQV KDV D SK\VLFDO
LPSDLUPHQWDVKHUFRQGLWLRQDIIHFWVERWKKHUPXVFXORVNHOHWDO
DQG UHVSLUDWRU\ V\VWHPV 6HH &)5 † K
$GGLWLRQDOO\+RVNLQV¶VGLVDELOLW\DIIHFWVVHYHUDORI
KHU PDMRU OLIH DFWLYLWLHV LQFOXGLQJ EUHDWKLQJ PRYLQJ
SHUIRUPLQJPDQXDOWDVNVVXFKDVGRLQJODXQGU\DQGZRUNLQJ
6HH&)5† L GHILQLQJPDMRUOLIHDFWLYLWLHVDV
³IXQFWLRQV VXFK DV FDULQJ IRU RQHVHOI SHUIRUPLQJ PDQXDO
WDVNVZDONLQJVHHLQJKHDULQJVSHDNLQJEUHDWKLQJOHDUQLQJ
DQGZRUNLQJ´
7KHTXHVWLRQLVZKHWKHU+RVNLQV¶VGLVDELOLW\³VXEVWDQWLDOO\
OLPLWV´ DQ\ RI WKHVH PDMRU OLIH DFWLYLWLHV 7KH UHJXODWLRQV
SURYLGHWKDWVXEVWDQWLDOO\OLPLWVPHDQV³ L 8QDEOHWRSHUIRUP
DPDMRUOLIHDFWLYLW\WKDW WKHDYHUDJHSHUVRQLQWKHJHQHUDO
SRSXODWLRQFDQSHUIRUPRU LL 6LJQLILFDQWO\UHVWULFWHGDVWR
1R +RVNLQVY2DNODQG&RXQW\HWDO
HVWDEOLVKHV KHU SULPD IDFLH FDVH WKHQ DQ LQIHUHQFH RI
GLVFULPLQDWLRQDULVHV$WWKDWSRLQWWKHEXUGHQRISURGXFWLRQ
VKLIWV WR WKH HPSOR\HU ZKR PXVW VHW IRUWK D OHJLWLPDWH
QRQGLVFULPLQDWRU\UHDVRQIRUWKHSODLQWLII¶VGLVFKDUJH6HHLG
DW7KHSODLQWLIIWKHQKDVWKHRSSRUWXQLW\WRGHPRQVWUDWH
WKDWWKHHPSOR\HU¶VSURIIHUHGUHDVRQIRUWDNLQJWKHDGYHUVH
DFWLRQ ZDV SUHWH[WXDO 6HH LG 7R VR GHPRQVWUDWH WKH
SODLQWLIIPXVWSURYH³WKDWWKH>HPSOR\HU¶V@DVVHUWHGUHDVRQV
KDYHQREDVLVLQIDFWWKDWWKHUHDVRQVGLGQRWLQIDFWPRWLYDWH
WKH GLVFKDUJH RU LI WKH\ ZHUH IDFWRUV LQ WKH >HPSOR\HU¶V@
GHFLVLRQWKDWWKH\ZHUHMRLQWO\LQVXIILFLHQWWRPRWLYDWHWKH
GLVFKDUJH´,G TXRWDWLRQRPLWWHG DOWHUDWLRQVLQRULJLQDO
7KHGLVWULFWFRXUWIRXQGWKDW+RVNLQVIDLOHGWRPDNHRXWD
SULPDIDFLHFDVHRIHPSOR\PHQWGLVFULPLQDWLRQ,WH[SODLQHG
WKDW+RVNLQV¶VLQDELOLW\WRSHUIRUPWKHHVVHQWLDOIXQFWLRQRI
UHVWUDLQLQJLQPDWHVUHQGHUHGKHUXQTXDOLILHGIRUWKHSRVLWLRQ
RI GHSXW\ RQH $VVXPLQJ DUJXHQGR WKDW +RVNLQV FRXOG
HVWDEOLVKDSULPDIDFLHFDVHWKHGLVWULFWFRXUWFRQFOXGHGWKDW
+RVNLQV IDLOHG WR SUHVHQW VXIILFLHQW HYLGHQFH RI SUHWH[W WR
UHEXWWKHGHIHQGDQWV¶OHJLWLPDWHQRQGLVFULPLQDWRU\UHDVRQIRU
GLVFKDUJLQJKHU
7KH GLVWULFW FRXUW LQ WKH LQVWDQW FDVH IXQGDPHQWDOO\
PLVDSSOLHGWKH0F'RQQHOO'RXJODVWHVW7KHFRXUWFRQFOXGHG
WKDW +RVNLQV ZDV QRW TXDOLILHG EHFDXVH RI KHU LQDELOLW\ WR
SHUIRUPDQHVVHQWLDOIXQFWLRQRIWKHMRE+RZHYHU+RVNLQV¶V
FODLPLVWKDWDOWKRXJKWKHGHIHQGDQWVILUHGKHUEHFDXVHRIKHU
GLVDELOLW\WKH\DFFRPPRGDWHGPDOHVZLWKVLPLODUUHVWULFWLRQV
7KH GLVWULFW FRXUW¶V DQDO\VLV HVVHQWLDOO\ SUHFOXGHG +RVNLQV
IURP EHLQJ DEOH WR FKDOOHQJH WKH SROLF\ VKH DOOHJHV WR EH
GLVFULPLQDWRU\:HDGGUHVVHGDVLPLODUVLWXDWLRQLQWKHUHFHQW
FDVHRI&OLQHY&DWKROLF'LRFHVHRI7ROHGR)G
WK &LU DQG ZH LQVWUXFWHG WKDW ³ZKHQ DVVHVVLQJ
ZKHWKHU D SODLQWLII KDV PHW KHU HPSOR\HU¶V OHJLWLPDWH
H[SHFWDWLRQVDWWKHSULPDIDFLHVWDJHRIDWHUPLQDWLRQFDVHD
FRXUWPXVWH[DPLQHSODLQWLII¶VHYLGHQFHLQGHSHQGHQWRIWKH
QRQGLVFULPLQDWRU\ UHDVRQ μSURGXFHG¶ E\ WKH GHIHQVH DV LWV
UHDVRQ IRU WHUPLQDWLQJ SODLQWLII´ ,G DW %HFDXVH
+RVNLQV¶VLQDELOLW\WRUHVWUDLQLQPDWHVLVWKHUHDVRQSURIIHUHG

-- 6 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
KHUSURSRVHGDFFRPPRGDWLRQLVDUHDVRQDEOHRQH&I+LOOY
+DUSHU)6XSSG ('9D KROGLQJWKDW
IRUPHUGHSXW\VKHULII¶VSURSRVHGDFFRPPRGDWLRQWKDWKHEH
SODFHG LQ WKH FRQWURO URRP RQ D SHUPDQHQW EDVLV ZDV
XQUHDVRQDEOH ³EHFDXVH WKLV DFFRPPRGDWLRQ HIIHFWLYHO\
HOLPLQDWHG WKH μHVVHQWLDO IXQFWLRQ¶ RI EHLQJ DEOH WR URWDWH
WKURXJKWKHYDULRXVGXW\SRVWV´ 0F'RQDOGY.DQVDV'HS¶W
RI&RUUHFWLRQV)6XSS '.DQ
ILQGLQJ WKDW D VWDWH SULVRQ ZDV QRW REOLJDWHG WR DOORZ DQ
REHVHFRUUHFWLRQDORIILFHUZLWKDKHDUWFRQGLWLRQWRZRUNDW
RQO\FHUWDLQRIWKHSRVWVZLWKLQWKHSULVRQDVVXFKDUHTXHVWHG
DFFRPPRGDWLRQZDVXQUHDVRQDEOH
7KHUHIRUHEHFDXVH+RVNLQVKDVIDLOHGWRFUHDWHDJHQXLQH
LVVXHRIPDWHULDOIDFWDVWRZKHWKHUUHVWUDLQLQJLQPDWHVLVDQ
HVVHQWLDO IXQFWLRQ RU DV WR ZKHWKHU VKH FRXOG SHUIRUP WKH
HVVHQWLDOIXQFWLRQVRIWKHGHSXW\RQHSRVLWLRQZLWKUHDVRQDEOH
DFFRPPRGDWLRQ ZH DIILUP WKH GLVWULFW FRXUW¶V JUDQW RI
VXPPDU\MXGJPHQWWRWKHGHIHQGDQWV
%7LWOH9,,&ODLP
+RVNLQVDOVRDVVHUWVDJHQGHUGLVFULPLQDWLRQFODLPEDVHGRQ
WKHVH VDPH IDFWV 6KH DOOHJHV WKDW WKH GHIHQGDQWV
DFFRPPRGDWHG VHYHUDO VLPLODUO\ VLWXDWHG PDOH GHSXWLHV E\
DOORZLQJ WKHP WR ZRUN OLJKWGXW\ MREV ZKHQ GLVDEOHG E\
LQMXU\
,Q 0F'RQQHOO 'RXJODV &RUS Y *UHHQ 86
WKH 6XSUHPH &RXUW VHW IRUWK WKH IUDPHZRUN IRU
DQDO\]LQJFDVHVDOOHJLQJZRUNSODFHGLVFULPLQDWLRQEDVHGRQ
LQGLUHFWHYLGHQFH8QGHUWKH0F'RQQHOO'RXJODVEXUGHQ
VKLIWLQJ IUDPHZRUN WKH SODLQWLII EHDUV WKH EXUGHQ RI
HVWDEOLVKLQJ E\ D SUHSRQGHUDQFH RI WKH HYLGHQFH D SULPD
IDFLH FDVH E\ GHPRQVWUDWLQJ ³ PHPEHUVKLS LQ WKH
SURWHFWHG FODVV WKDW VKH VXIIHUHG DQ DGYHUVH DFWLRQ
WKDWVKHZDVTXDOLILHGIRUWKHSRVLWLRQDQG WKDWVKH
ZDVUHSODFHGE\VRPHRQHRXWVLGHWKHSURWHFWHGFODVVRUZDV
WUHDWHG GLIIHUHQWO\ IURP VLPLODUO\ VLWXDWHG PHPEHUV RI WKH
XQSURWHFWHGFODVV´:DUILHOGY/HEDQRQ&RUUHFWLRQDO,QVW
)G WK &LU ,I WKH SODLQWLII
1R +RVNLQVY2DNODQG&RXQW\HWDO
WKHFRQGLWLRQPDQQHURUGXUDWLRQXQGHUZKLFKDQLQGLYLGXDO
FDQSHUIRUPDSDUWLFXODUPDMRUOLIHDFWLYLW\DVFRPSDUHGWRWKH
FRQGLWLRQ PDQQHU RU GXUDWLRQ XQGHU ZKLFK WKH DYHUDJH
SHUVRQLQWKHJHQHUDOSRSXODWLRQFDQSHUIRUPWKDWVDPHPDMRU
OLIH DFWLYLW\´ &)5 † M 7KH UHJXODWLRQV
IXUWKHU SURYLGH D OLVW RI IDFWRUV WR EH FRQVLGHUHG LQ
GHWHUPLQLQJ ZKHWKHU DQ LQGLYLGXDO PHHWV WKLV GHILQLWLRQ
³ L 7KH QDWXUH DQG VHYHULW\ RI WKH LPSDLUPHQW LL 7KH
GXUDWLRQRUH[SHFWHGGXUDWLRQRIWKHLPSDLUPHQWDQG LLL 7KH
SHUPDQHQWRUORQJWHUPLPSDFWRUWKHH[SHFWHGSHUPDQHQWRU
ORQJWHUPLPSDFWRIRUUHVXOWLQJIURPWKHLPSDLUPHQW´
&)5† M
7KH GLVWULFW FRXUW UHOLHG RQ +RVNLQV¶V RZQ WHVWLPRQ\ WR
FRQFOXGHWKDWKHULPSDLUPHQWGRHVQRWVXEVWDQWLDOO\OLPLWDQ\
PDMRUOLIHDFWLYLWLHV+RVNLQVWHVWLILHG³,KDYHWREHFDUHIXO
WKHZD\,PRYHDWWLPHV,WKXUWVWRFRXJKVQHH]HLI,EUHDWKH
WKHZURQJZD\%XW,OHDUQHGMXVWWRNLQGRILJQRUHLWRU²,
MXVWEHFDUHIXOZLWKWKHZD\,GRWKLQJV´-$DW +RVNLQV
'HS +RVNLQVDOVRWHVWLILHGWKDWLQKHUGDLO\DFWLYLWLHVVXFK
DVGRLQJODXQGU\VKHVRPHWLPHVIHHOVSDLQWKDWFDXVHVKHUWR
VWRSGRLQJWKDWDFWLYLW\+RZHYHU+RVNLQVLQGLFDWHGWKDWVKH
GRHVQRWOHWKHULPSDLUPHQWVVWRSKHUIURPGRLQJDQ\WKLQJDQG
WKDWVKH³DWWHPSW>V@WRGRHYHU\WKLQJ´-$DW +RVNLQV
'HS 7KHGLVWULFWFRXUWTXRWHGWKHIROORZLQJSDVVDJHIURP
+RVNLQV¶VWHVWLPRQ\ILQGLQJLW³HVSHFLDOO\VLJQLILFDQW´
4 :RXOGLWEHDIDLUVWDWHPHQWWKDW\RXKDYHOHDUQHG
VRPHEHKDYLRUWKDWDOORZV\RXWRDYRLGGLVFRPIRUW
>LQWKHFKHVWDUHD@E\DYRLGLQJFHUWDLQDFWLYLWLHV"
$ 1RQRWDYRLGLQJFHUWDLQDFWLYLWLHV
4 -XVWWKHZD\\RXGRWKHP"
$ <HV$OLWWOHELWPRUHFDUHIXO
-$DW '&W2S
:HEHOLHYHWKDWWKHGLVWULFWFRXUWHPSOR\HGDQH[FHHGLQJO\
QDUURZLQWHUSUHWDWLRQRI³VXEVWDQWLDOO\OLPLWV´2IFRXUVHLQ

-- 7 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
%HFDXVH RI WKLV FRQFOXVLRQ ZH QHHG QRW DGGUHVV ZKHWKHU +RVNLQV
LV DOVR VXEVWDQWLDOO\ OLPLWHG LQ WKH PDMRU OLIH DFWLYLW\ RI ZRUNLQJ 6HH
6XWWRQ 86 DW FLWLQJ &)5 SW $SS † M IRU
WKH SURSRVLWLRQ WKDW ZRUNLQJ VKRXOG EH FRQVLGHUHG RQO\ LI DQ LQGLYLGXDO LV
QRW VXEVWDQWLDOO\ OLPLWHG ZLWK UHVSHFW WR DQ\ RWKHU PDMRU OLIH DFWLYLW\
GHWHUPLQLQJZKHWKHUDGLVDELOLW\VXEVWDQWLDOO\OLPLWVDPDMRU
OLIHDFWLYLW\WKH6XSUHPH&RXUWKDVLQVWUXFWHGWKDWFRXUWVDUH
WR FRQVLGHU QDWXUDO DGRSWLYH PHDVXUHV WKDW PLWLJDWH WKH
GLVDELOLW\6HH$OEHUWVRQ¶V,QFY.LUNLQJEXUJ86
+RZHYHUXQGHUWKHUHDVRQLQJRIWKHGLVWULFW
FRXUWDQLQGLYLGXDOZRXOGEHGLVDEOHGZLWKLQWKHPHDQLQJRI
WKH$'$RQO\LIVKHFDQVKRZWKDWVKHKDVDYRLGHGFHUWDLQ
PDMRUOLIHDFWLYLWLHVDVDUHVXOWRIKHULPSDLUPHQW7KLVLVQRW
WKHODZDVWKHDSSOLFDEOHUHJXODWLRQVLQVWUXFWDQLQGLYLGXDO
LVVXEVWDQWLDOO\OLPLWHGLIVKHLVDEOHWRSHUIRUPDPDMRUOLIH
DFWLYLW\EXWLV³>V@LJQLILFDQWO\UHVWULFWHGDVWRWKHFRQGLWLRQ
PDQQHU RU GXUDWLRQ´ XQGHU ZKLFK VKH FDQ SHUIRUP WKDW
DFWLYLW\ &)5 † M LL :H FRQFOXGH WKDW
+RVNLQVKDVUDLVHGDJHQXLQHLVVXHRIPDWHULDOIDFWUHJDUGLQJ
ZKHWKHU KHU LPSDLUPHQW VXEVWDQWLDOO\ OLPLWV WKH PDMRU OLIH
DFWLYLWLHVRIEUHDWKLQJPRYLQJDQGSHUIRUPLQJPDQXDOWDVNV
VXFKDVGRLQJODXQGU\$FFRUGLQJWR+RVNLQV¶VWHVWLPRQ\
ERWKWKHPDQQHUDQGGXUDWLRQXQGHUZKLFKVKHFDQSHUIRUP
WKHVH PDMRU OLIH DFWLYLWLHV DUH VLJQLILFDQWO\ UHVWULFWHG 6KH
WHVWLILHGWKDWDIWHUKHUDFFLGHQWVKHPXVWQRZEHFDUHIXODERXW
WKH ZD\ WKDW VKH PRYHV $OWKRXJK VKH ³DWWHPSW>V@ WR GR
HYHU\WKLQJ´VKHPXVWVRPHWLPHVFHDVHIRUDWLPHSHUIRUPLQJ
GDLO\ DFWLYLWLHV EHFDXVH RI WKH SDLQ -$ DW +RVNLQV
'HS 7KH GXUDWLRQ RI +RVNLQV¶V LPSDLUPHQW LV OLNHO\
SHUPDQHQW,QVXSSRUWRIWKHLUSRVLWLRQWKHGHIHQGDQWVFLWH
.RFVLVY0XOWL&DUH0DQDJHPHQW,QF)G WK&LU
DFDVHLQZKLFKWKLVFRXUWFRQFOXGHGEDVHGXSRQWKH
SODLQWLII¶VRZQDGPLVVLRQVWKDWKHUPXOWLSOHVFOHURVLVGLGQRW
VXEVWDQWLDOO\OLPLWDQ\RIKHUPDMRUOLIHDFWLYLWLHV+RZHYHU
ZHILQG.RFVLVLQDSSRVLWHEHFDXVHLQWKDWFDVHXQOLNHLQWKH
LQVWDQWFDVHWKHSODLQWLII³WHVWLILHGLQKHUGHSRVLWLRQWKDWQRQH
RIKHULPSDLUPHQWV²DUWKULWLV06RUDQ\FRPELQDWLRQRI
KHDOWKSUREOHPV²OLPLWHGKHUDFWLYLW\LQDQ\ZD\´,GDW
HPSKDVLVDGGHG
1R +RVNLQVY2DNODQG&RXQW\HWDO
7KH +HQGULFNV5RELQVRQ FRXUW H[SODLQHG WKDW ³LW ZRXOG IUXVWUDWH WKH
$'$ IRU SHUPDQHQWO\ LPSDLUHG HPSOR\HHV WR ILOO WHPSRUDU\ OLJKWGXW\
DVVLJQPHQWV ZKHQ WKRVH MREV KDYH EHHQ VHW DVLGH VSHFLILFDOO\ IRU
UHFXSHUDWLQJ HPSOR\HHV´ +HQGULFNV5RELQVRQ )G DW
WHPSRUDULO\UHVWULFWHGIURPSHUIRUPLQJWKHLUXVXDOSRVLWLRQV
+RZHYHU RQFH DQ LQMXUHG HPSOR\HH¶V UHVWULFWLRQV EHFDPH
SHUPDQHQW WKH HPSOR\HH FRXOG QRW UHPDLQ LQ WKH LQWHULP
OLJKWGXW\MREEXWZDVUHTXLUHGHLWKHUWRWUDQVIHUWRDQRWKHU
SRVLWLRQZKHUHKHFRXOGSHUIRUPWKHUHTXLUHGGXWLHVRUWRJR
RQ³PHGLFDOOD\RII´,GDW7KHSODLQWLIIVFKDOOHQJHGWKLV
SROLF\DUJXLQJWKDW([FHOVKRXOGQRWUHPRYHWKHSHUPDQHQWO\
UHVWULFWHG HPSOR\HHV IURP WKH OLJKWGXW\ MREV WKDW ZHUH
GHVLJQDWHGE\([FHODVWHPSRUDU\UHKDELOLWDWLRQSHULRGMREV
7KH 6HYHQWK &LUFXLW ILUVW QRWHG WKDW LW KDG DSSURYHG RI DQ
HPSOR\HU¶VRIIHURIOLJKWGXW\DVVLJQPHQWVDVDUHDVRQDEOH
DFFRPPRGDWLRQ IRU LQMXUHG ZRUNHUV 6HH LG DW
+RZHYHUUHO\LQJRQLWVSULRUGHFLVLRQLQ'DOWRQY6XEDUX
,VX]X $XWRPRWLYH ,QF )G WK &LU WKH
FRXUW KHOG WKDW WKH $'$ GRHV QRW FRPSHO DQ HPSOR\HU WR
FRQYHUWWHPSRUDU\SRVLWLRQVLWKDVVHWDVLGHLQWRSHUPDQHQW
SRVLWLRQVIRULWVGLVDEOHGHPSOR\HHV$VWKH'DOWRQFRXUWKDG
H[SODLQHG ³>W@R KROG RWKHUZLVH ZRXOG EH WR UHTXLUH >WKH
HPSOR\HU@WRFUHDWHQHZIXOOWLPHSRVLWLRQVWRDFFRPPRGDWH
LWVGLVDEOHGHPSOR\HHVDFRXUVHRIDFWLRQQRWUHTXLUHGXQGHU
WKH$'$´,GDW
$OWKRXJKWKHVH6HYHQWK&LUFXLWFDVHVDUHQRWGLUHFWO\RQ
SRLQW DV WKH\ LQYROYHG WHPSRUDU\ OLJKWGXW\ SRVLWLRQV IRU
UHFXSHUDWLQJ HPSOR\HHV UDWKHU WKDQ D UHOLHI SRVLWLRQ ZH
QHYHUWKHOHVV ILQG WKHP LQVWUXFWLYH /LNH WKH SODLQWLIIV LQ
+HQGULFNV5RELQVRQDQG'DOWRQ+RVNLQVVXJJHVWVWKDWVKHEH
DVVLJQHG WR D URWDWLQJW\SH MRE RQ D SHUPDQHQW EDVLV :H
DJUHH WKDW +RVNLQV¶V UHTXHVW ZRXOG HVVHQWLDOO\ UHTXLUH WKH
FUHDWLRQ RI D QHZ SRVLWLRQ UDWKHU WKDQ UHDVVLJQPHQW WR DQ
RWKHUZLVHH[LVWLQJYDFDQWRQH$VZHKDYHPDGHFOHDUDQ
HPSOR\HU¶VGXW\WRUHDVVLJQDQRWKHUZLVHTXDOLILHGGLVDEOHG
HPSOR\HHGRHVQRWUHTXLUHWKDWWKHHPSOR\HUFUHDWHDQHZMRE
LQRUGHUWRGRVR6HH&DVVLG\)GDW:HWKHUHIRUH
FRQFOXGHWKDW+RVNLQVKDVQRWPHWKHUEXUGHQRIVKRZLQJWKDW

-- 8 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
VXEVWDWLRQSRVLWLRQZDVQRWDYDLODEOHZKHQ2&6'OHDUQHGRI
+RVNLQV¶VGLVDEOLQJLQMXU\QRUZDVLWVDYDLODELOLW\DQWLFLSDWHG
LQ WKH QHDU IXWXUH ZH FRQFOXGH WKDW DVVLJQPHQW WR WKDW
SRVLWLRQZDVQRWDUHDVRQDEOHDFFRPPRGDWLRQ
+RVNLQV¶VVWURQJHVWDUJXPHQWLVWKDWWKHGHIHQGDQWVVKRXOG
KDYHUHDVVLJQHGKHUSHUPDQHQWO\WRDSRVLWLRQLQRQHRIWKH
FRQWURO ERRWKV ZLWKLQ WKH MDLO IDFLOLW\ 7KH FRQWURO ERRWK
RSHUDWRUVZKRVLWLQDORFNHGERRWKDUHSULPDULO\UHVSRQVLEOH
IRURSHUDWLQJWKHFRQWUROSDQHOVRDVWRSHUPLWRIILFHUVWRHQWHU
DQGOHDYHFHOOEORFNV0DMRU4XLVHQEHUU\H[SODLQHGWKDWWKH
FRQWUROERRWKSRVLWLRQVDUHDVVLJQHGRQDURWDWLQJEDVLVWRWKH
GHSXWLHV +H VWDWHG ³7KH QRUPDO DVVLJQPHQW LV WR DOORZ
>GHSXWLHV@WRZRUNWKH>FHOO@EORFNVDQGWKHQDIWHUDGD\RID
EORFNRUDSDUWLFXODU>O\@KDUGEORFNWKDW\RXJLYHDGHSXW\D
FKDQFHWRKDYHDEUHDNVRPHZKDW7KHERRWKLVFRQVLGHUHG
SUREDEO\ DQ HDVLHU MRE LQ WKH PDLQ MDLO 6R LQ IDLUQHVV WR
HYHU\ERG\LWKDVWUDGLWLRQDOO\EHHQWKDWWKDW>VLF@ERRWKMRE
ZRXOGEHURWDWHGDURXQGVRWKDWHYHU\ERG\KDGDFKDQFHWR
KDYH WKHLU EUHDN´ -$ DW 4XLVHQEHUU\ 'HS 7KH
GHIHQGDQWV GR QRW GLVSXWH WKDW WKH FRQWURO ERRWK SRVLWLRQ
LQYROYHVQRLQPDWHFRQWDFWDQGWKDW+RVNLQVZRXOGWKHUHIRUH
EHTXDOLILHGIRULWLQVWHDGWKH\DUJXHWKDWDVVLJQLQJ+RVNLQV
WR WKLV WHPSRUDU\ SRVLWLRQ RQ D SHUPDQHQW EDVLV LV QRW D
UHDVRQDEOHDFFRPPRGDWLRQ:HKDYHQRWEHIRUHKDGRFFDVLRQ
WRDGGUHVVWKHLVVXHRIZKHWKHUDUHDVRQDEOHDFFRPPRGDWLRQ
ZRXOG LQFOXGH WXUQLQJ D URWDWLQJ RU UHOLHI SRVLWLRQ LQWR D
SHUPDQHQWSRVLWLRQ2QWKHIDFWVRIWKLVFDVHZHFRQFOXGH
WKDWVXFKDQDFFRPPRGDWLRQLVQRWDUHDVRQDEOHRQH
,QVXSSRUWRIWKHLUSRVLWLRQWKDWWKH$'$LPSRVHVQRGXW\
RQDQHPSOR\HUWRFRQYHUWDWHPSRUDU\UHOLHISRVLWLRQLQWRD
QHZIXOOWLPHSRVLWLRQWKHGHIHQGDQWVFLWHWKH6HYHQWK&LUFXLW
FDVHRI+HQGULFNV5RELQVRQY([FHO&RUS)G WK
&LU ,Q+HQGULFNV5RELQVRQIRUPHUHPSOR\HHVRIDQ
([FHOPHDWSDFNLQJSODQWEURXJKWDFODVVDFWLRQDOOHJLQJWKDW
([FHO¶VPHGLFDOOD\RIISROLF\YLRODWHGWKH$'$EHFDXVHLW
IDLOHG WR SURYLGH UHDVRQDEOH DFFRPPRGDWLRQ WR LWV
SHUPDQHQWO\GLVDEOHGHPSOR\HHV([FHOVHWDVLGHDQXPEHURI
WKHOHDVWSK\VLFDOO\GHPDQGLQJMREVIRUHPSOR\HHVZKRZHUH
1R +RVNLQVY2DNODQG&RXQW\HWDO
:KHWKHU+RVNLQVLV³2WKHUZLVH4XDOLILHG´IRUWKH
3RVLWLRQRI'HSXW\2QH
D(VVHQWLDO)XQFWLRQ
+RVNLQVFRQWHQGVWKDWSK\VLFDOUHVWUDLQWRILQPDWHVLVQRWDQ
HVVHQWLDO IXQFWLRQ RI WKH GHSXW\ RQH SRVLWLRQ ,I SK\VLFDO
UHVWUDLQW RI LQPDWHV LV QRW DQ HVVHQWLDO MRE IXQFWLRQ WKHQ
+RVNLQVPHHWVWKHGHILQLWLRQRIDTXDOLILHGLQGLYLGXDOZLWKD
GLVDELOLW\EHFDXVHWKHSDUWLHVDJUHHWKDWVKHLVIXOO\DEOHWR
SHUIRUPDOOIXQFWLRQVRIWKHGHSXW\RQHSRVLWLRQVDYHWKLVRQH
%HFDXVH+RVNLQVFKDOOHQJHGWKLVMREFULWHULRQDVXQHVVHQWLDO
WKHGLVWULFWFRXUWSURSHUO\SODFHGWKHEXUGHQRQWKHGHIHQGDQWV
WRGHPRQVWUDWHWKDWWKLVFULWHULRQLVLQIDFWDIXQGDPHQWDOMRE
GXW\
³7KHWHUPHVVHQWLDOIXQFWLRQVPHDQVWKHIXQGDPHQWDOMRE
GXWLHV RI WKH HPSOR\PHQW SRVLWLRQ WKH LQGLYLGXDO ZLWK D
GLVDELOLW\ KROGV RU GHVLUHV´ EXW LW GRHV QRW LQFOXGH RQO\
PDUJLQDOIXQFWLRQV&)5† Q ,QGHWHUPLQLQJ
ZKHWKHU D SDUWLFXODU IXQFWLRQ LV HVVHQWLDO WKH UHJXODWLRQV
LQVWUXFWFRXUWVWRFRQVLGHUWKHIROORZLQJOLVWRIIDFWRUVZKLFK
LVLOOXVWUDWLYHUDWKHUWKDQH[KDXVWLYH
L 7KHHPSOR\HU¶VMXGJPHQWDVWRZKLFKIXQFWLRQVDUH
HVVHQWLDO
LL :ULWWHQMREGHVFULSWLRQVSUHSDUHGEHIRUHDGYHUWLVLQJ
RULQWHUYLHZLQJDSSOLFDQWVIRUWKHMRE
LLL 7KHDPRXQWRIWLPHVSHQWRQWKHMRESHUIRUPLQJWKH
IXQFWLRQ
LY 7KHFRQVHTXHQFHVRIQRWUHTXLULQJWKHLQFXPEHQWWR
SHUIRUPWKHIXQFWLRQ
Y 7KHWHUPVRIDFROOHFWLYHEDUJDLQLQJDJUHHPHQW
YL 7KHZRUNH[SHULHQFHRISDVWLQFXPEHQWVLQWKHMRE
DQGRU
YLL 7KH FXUUHQW ZRUN H[SHULHQFH RI LQFXPEHQWV LQ
VLPLODUMREV
&)5† Q 7KHLQTXLU\LQWRZKHWKHUDIXQFWLRQ
LVHVVHQWLDOLVKLJKO\IDFWVSHFLILF6HH%ULFNHUVY&OHYHODQG
%G RI (GXF )G WK &LU +DOO Y

-- 9 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
8QLWHG 6WDWHV 3RVWDO 6HUY )G WK &LU
³6XFK D GHWHUPLQDWLRQ VKRXOG EH EDVHG XSRQ PRUH
WKDQ VWDWHPHQWV LQ D MRE GHVFULSWLRQ DQG VKRXOG UHIOHFW WKH
DFWXDO IXQFWLRQLQJ DQG FLUFXPVWDQFHV RI WKH SDUWLFXODU
HQWHUSULVHLQYROYHG´
,Q VXSSRUW RI WKHLU SRVLWLRQ WKDW SK\VLFDOO\ UHVWUDLQLQJ
LQPDWHVLVDIXQGDPHQWDOGXW\RIDGHSXW\RQHWKHGHIHQGDQWV
VXEPLWWHGDZULWWHQMREGHVFULSWLRQDVZHOODVWKHWHVWLPRQ\RI
0DMRU 4XLVHQEHUU\ 7KH JHQHUDO VXPPDU\ RI WKH MRE RI
GHSXW\RQHUHDGVLQSHUWLQHQWSDUWDVIROORZV
8QGHU JHQHUDO VXSHUYLVLRQ DQG DV D 'HSXW\ 6KHULII
DSSRLQWHG E\ WKH 2DNODQG &RXQW\ 6KHULII SHUIRUPV
GXWLHVZLWKLQWKHFRUUHFWLRQVRURQRFFDVLRQURDGSDWURO
DUHDV$VD'HSXW\,LQWKHFRUUHFWLRQVDUHDSHUIRUPV
URXWLQH VHFXULW\ DQG FXVWRG\ DFWLYLWLHV $VVLVWV LQ
PDLQWDLQLQJDQGHQIRUFLQJSURFHGXUHVDQGUHJXODWLRQVWR
HQVXUH VHFXULW\ LV PDLQWDLQHG DW WKH MDLO DQG VDWHOOLWH
IDFLOLWLHV 'LVWULEXWHV PHDOV EHGGLQJ DQG VXSSOLHV WR
LQPDWHV 6FUHHQV YLVLWRUV LVVXHV SDVVHV DQG HQVXUHV
YLVLWDWLRQUHJXODWLRQVDUHPDLQWDLQHG7UDQVSRUWVLQPDWHV
WRDXWKRUL]HGIDFLOLWLHVHQVXULQJWKDWVHFXULW\SURFHGXUHV
DUH IROORZHG 3K\VLFDOO\ UHVWUDLQV LQGLYLGXDOV DV
QHFHVVDU\ 0D\ DW WLPHV SHUIRUP FHUWDLQ 'HSXW\ ,,
IXQFWLRQVLQOLPLWHGLQVWDQFHV
-$ DW 7KH ZULWWHQ GHVFULSWLRQ OLVWV DV DPRQJ WKH
W\SLFDOGXWLHVIRUDGHSXW\RQHZLWKLQWKHFRUUHFWLRQVDUHD
GULYLQJWKHWUDQVSRUWDWLRQYHKLFOHDQGVXSHUYLVLQJWKHFRQGXFW
RI LQPDWHV GXULQJ WUDQVSRUWDWLRQ WR DXWKRUL]HG IDFLOLWLHV
VXSHUYLVLQJLQPDWHVEHLQJKHOGDWWKHFRXUWKRXVHDQGDZDLWLQJ
FRXUW DSSHDUDQFHV JXDUGLQJ LQPDWHV GXULQJ FRXUWURRP
DSSHDUDQFHVWRHQVXUHWKDWVHFXULW\LVPDLQWDLQHGVXSHUYLVLQJ
WKH DFWLYLWLHV RI LQPDWHV DVVLJQHG WR DOO MDLO IDFLOLWLHV
VHDUFKLQJLQPDWHVDQGHQVXULQJWKDWVHFXULW\LVPDLQWDLQHGDW
MDLOIDFLOLWLHV-$DW7KHGHIHQGDQWVDOVRSUHVHQWHG
WKH WHVWLPRQ\ RI 0DMRU 4XLVHQEHUU\ WKH &KLHI RI 6WDII DW
2&6' ZKR VWDWHG WKDW KH EHOLHYHG SK\VLFDO UHVWUDLQW RI
1R +RVNLQVY2DNODQG&RXQW\HWDO
FLUFXPVWDQFHV FRXOG SURPRWH HPSOR\HH OR\DOW\ DQG
WHDPZRUN +RZHYHU HPSOR\HUV DUH QRW UHTXLUHG WR GR VR
XQGHU WKH $'$´ VHH DOVR &)5 SW $SS
† R ³$Q HPSOR\HU RU RWKHU FRYHUHG HQWLW\ LV QRW
UHTXLUHGWRUHDOORFDWHHVVHQWLDOIXQFWLRQV´
+RVNLQV QH[W DUJXHV WKDW WKH GHIHQGDQWV IDLOHG WR
DFFRPPRGDWHKHUE\UHDVVLJQLQJKHUWRDGLIIHUHQWSRVLWLRQ
+RVNLQVLGHQWLILHVVHYHUDOSRVLWLRQVWKDWDUHHTXLYDOHQWWRKHU
ROGSRVLWLRQEXWWKDWGRQRWUHTXLUHWKHUHVWUDLQWRILQPDWHV
7KHILUVWSRVLWLRQLGHQWLILHGE\+RVNLQVLVWKHLQWDNHSRVLWLRQ
DWWKHQHZFRPPHUFHVXEVWDWLRQZKLFKUHTXLUHVDQVZHULQJ
SKRQHVDQGWDNLQJZDONLQUHSRUWVIURPWKHJHQHUDOSXEOLF,W
LVZHOOHVWDEOLVKHGKRZHYHUWKDWDQHPSOR\HULVQRWREOLJDWHG
WRFUHDWHDSRVLWLRQQRWWKHQLQH[LVWHQFH6HHHJ&DVVLG\
Y'HWURLW(GLVRQ&R)G WK&LU 7KH
FRPPHUFHVXEVWDWLRQSRVLWLRQGLGQRWH[LVWGXULQJWKHWLPHLQ
ZKLFKWKHGHIHQGDQWVDWWHPSWHGWRILQGDVXLWDEOHDVVLJQPHQW
IRU+RVNLQV IDOORI RUDWWKHWLPHVKHZDVILUHGRQ
1RYHPEHU ,QGHHG +RVNLQV ZDV GHSRVHG RQ
'HFHPEHU DQG DW WKDW WLPH VKH VWDWHG WKDW WKH
FRPPHUFHVXEVWDWLRQSRVLWLRQKDGMXVWEHHQFUHDWHGDQGZDV
WRVWDUWRQ-DQXDU\$OWKRXJKDQHPSOR\HUPD\EH
UHTXLUHG WR UHDVVLJQ DQ LQGLYLGXDO WR D SRVLWLRQ WKDW LV
FXUUHQWO\XQDYDLODEOHEXWWKDWZLOOEHFRPHYDFDQWZLWKLQD
UHDVRQDEOH DPRXQW RI WLPH LQ WKH LQVWDQW FDVH WKH QHZ
SRVLWLRQZDVFUHDWHGZHOORYHUD\HDUDIWHU2&6'EHFDPH
DZDUHRI+RVNLQV¶VGLVDELOLW\6HH&)5SW$SS
† R ³$V DQ H[DPSOH VXSSRVH WKHUH LV QR YDFDQW
SRVLWLRQ DYDLODEOH DW WKH WLPH WKDW DQ LQGLYLGXDO ZLWK D
GLVDELOLW\ UHTXHVWV UHDVVLJQPHQW DV D UHDVRQDEOH
DFFRPPRGDWLRQ 7KH HPSOR\HU KRZHYHU NQRZV WKDW DQ
HTXLYDOHQWSRVLWLRQIRUZKLFKWKHLQGLYLGXDOLVTXDOLILHGZLOO
EHFRPHYDFDQWQH[WZHHN8QGHUWKHVHFLUFXPVWDQFHVWKH
HPSOR\HUVKRXOGUHDVVLJQWKHLQGLYLGXDOWRWKHSRVLWLRQZKHQ
LW EHFRPHV DYDLODEOH´ 0RQHWWH )G DW ³,I
SHUKDSV DQ HPSOR\HU NQRZV WKDW D SRVLWLRQ IRU ZKLFK WKH
GLVDEOHGDSSOLFDQWLVTXDOLILHGZLOOEHFRPHYDFDQWLQDVKRUW
SHULRG RI WLPH WKH HPSOR\HU PD\ EH UHTXLUHG WR RIIHU WKH
SRVLWLRQ WR WKH HPSOR\HH´ %HFDXVH WKH FRPPHUFH

-- 10 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
GLVDELOLW\´ ,QVWHDG LI +RVNLQV FDQ GHPRQVWUDWH WKDW DQ HTXLYDOHQW
SRVLWLRQ ZDV RSHQ IRU ZKLFK VKH ZDV RWKHUZLVH TXDOLILHG WKHQ VKH ZLOO
SUHYDLO RQ KHU FODLP 6HH 1RUYLOOH Y 6WDWHQ ,VODQG 8QLY +RVS )G
G &LU ³5HDVVLJQPHQW GRHV QRW FRQVWLWXWH UHDVRQDEOH
DFFRPPRGDWLRQ ZKHUH D SRVLWLRQ FRPSDUDEOH WR WKH HPSOR\HH¶V
IRUPHU SODFHPHQW LV DYDLODEOH EXW WKH HPSOR\HH LQVWHDG LV DVVLJQHG WR D
SRVLWLRQ WKDW ZRXOG LQYROYH D VLJQLILFDQW GLPLQXWLRQ LQ VDODU\ EHQHILWV
VHQLRULW\ RU RWKHU DGYDQWDJHV WKDW VKH SRVVHVVHG LQ KHU IRUPHU MRE
$FFRUGLQJO\ WR SUHYDLO RQ DQ $'$ FODLP ZKHUH WKH HPSOR\HU KDV RIIHUHG
UHDVVLJQPHQW DV D UHDVRQDEOH DFFRPPRGDWLRQ WKH HPSOR\HH PXVW RIIHU
HYLGHQFH VKRZLQJ ERWK WKDW WKH SRVLWLRQ RIIHUHG ZDV LQIHULRU WR KHU IRUPHU
MRE DQG WKDW D FRPSDUDEOH SRVLWLRQ IRU ZKLFK WKH HPSOR\HH ZDV TXDOLILHG
ZDV RSHQ´
³:KHQWKHHPSOR\HHVHHNVDUHDVRQDEOHDFFRPPRGDWLRQVKH
PXVWHVWDEOLVKWKDWDμUHDVRQDEOH¶DFFRPPRGDWLRQLVSRVVLEOH
DQGEHDUVDWUDGLWLRQDOEXUGHQRISURRIWKDWVKHLVTXDOLILHGIRU
WKH SRVLWLRQ ZLWK VXFK UHDVRQDEOH DFFRPPRGDWLRQ ,I WKH
SODLQWLII HVWDEOLVKHV WKDW D UHDVRQDEOH DFFRPPRGDWLRQ LV
SRVVLEOHWKHHPSOR\HUEHDUVWKHEXUGHQRISURYLQJWKDWVXFK
UHDVRQDEOH DFFRPPRGDWLRQ ZRXOG LPSRVH DQ XQGXH
KDUGVKLS´0RQHWWH)GDWQ
+RVNLQVILUVWFRQWHQGVWKDWVKHFDQSHUIRUPWKHIXQFWLRQRI
UHVWUDLQLQJ LQPDWHV ZLWK WKH DVVLVWDQFH RI RWKHUV 6KH
H[SODLQV WKDW LW LV 2&6'¶V SROLF\ WKDW GHSXWLHV FDOO IRU
DVVLVWDQFH ZKHQ DWWHPSWLQJ WR UHVWUDLQ DQ LQPDWH DQG VKH
UHDVRQVWKDW³>L@ILWLVGHSDUWPHQWSROLF\WKDWPXOWLSOHGHSXWLHV
DUH WR EH XVHG ZKHQ DWWHPSWLQJ WR SK\VLFDOO\ UHVWUDLQ DQ
LQPDWHWKHQLWLVQRWXQUHDVRQDEOHIRU'HIHQGDQWVWRSURYLGH
WKLVVDPHDFFRPPRGDWLRQWR3ODLQWLIIRQDPRUHSHUPDQHQW
EDVLV´$SSHOODQW¶V%UDW+RZHYHUWKH$'$GRHVQRW
UHTXLUHHPSOR\HUVWRDFFRPPRGDWHLQGLYLGXDOVE\VKLIWLQJDQ
HVVHQWLDOMREIXQFWLRQRQWRRWKHUV6HHHJ%UDWWHQY66,
6HUYV,QF)G WK&LU ³7KHRQO\
SRVVLEOHDFFRPPRGDWLRQ>WKHSODLQWLII@LGHQWLILHVLVDOORZLQJ
FRZRUNHUV WR SHUIRUP DV PXFK DV RI WKH HVVHQWLDO
DXWRPRWLYHPHFKDQLFGXWLHVIRU%UDWWHQZKHQKHQHHGVVXFK
DVVLVWDQFH&RQWLQXLQJWKHSUDFWLFHRIμDVVLVWLQJ¶%UDWWHQ
LQ WDVNV RQ DQ DG KRF EDVLV PD\ EH VRXQG ODERU UHODWLRQV
SROLF\ IRU GHIHQGDQWV DV ZH FDQ LPDJLQH WKDW VXFK
1R +RVNLQVY2DNODQG&RXQW\HWDO
LQPDWHVWREHDIXQGDPHQWDOSDUWRIWKHMRERIGHSXW\RQH
0DMRU4XLVHQEHUU\H[SODLQHG
7KH GHSXW\ RQH LV WKH GHSXW\ WKDW¶V WKH HQWU\ OHYHO
SRVLWLRQ DQG LW¶V WKH RQH SHUVRQ ZKR KDV WKH FORVHVW
LQGLYLGXDO FRQWDFW ZLWK SULVRQHUV RU LQPDWHV LQ WKH
2DNODQG&RXQW\-DLO7KH\¶UHWKHILUVWOLQHRIGHIHQVH,
VXSSRVHZLWKWKHSULVRQHUZKHWKHULWEHIURPWKHWLPH
WKH\JHWXSLQWKHPRUQLQJZLWKWKHLUIHHGLQJVXQWLOWKH\
JRWREHGDWQLJKW,W¶VJHQHUDOO\WKHGHSXW\RQHVZKR
KDYH WKH GD\WRGD\ FRQWDFW ZLWK SULVRQHUV $QG WKH
RSSRUWXQLW\DQGDWWLPHVWKHQHFHVVLW\WKDWWKH\KDYHWR
KDYH SK\VLFDO FRQWDFW ZLWK WKRVH LQPDWHV , WKLQN IDOOV
ZLWKLQWKLVSK\VLFDOO\UHVWUDLQLQGLYLGXDOVDVQHFHVVDU\
OLQHWKDWZH¶UHUHIHUULQJWR
-$DW
,QUHVSRQVHWRWKLVVKRZLQJ+RVNLQVILUVWSRLQWVRXWWKDW
GHSXW\RQHVUDUHO\LIHYHUDUHUHTXLUHGSK\VLFDOO\WRUHVWUDLQ
LQPDWHV WKXV VXJJHVWLQJ WKDW WKH IXQFWLRQ LV QRW HVVHQWLDO
+RVNLQV SUHVHQWHG WHVWLPRQ\ UHJDUGLQJ KHU RZQ ZRUN
H[SHULHQFHDOWKRXJKVKHDFNQRZOHGJHGWKDWKHUMRELQYROYHG
WKH SRWHQWLDO IRU SK\VLFDO FRQIURQWDWLRQ ZLWK LQPDWHV RQ D
GDLO\ EDVLV +RVNLQV WHVWLILHG WKDW LQ KHU HQWLUH FDUHHU DV D
GHSXW\ RQH VKH KDG RQO\ RQH SK\VLFDO DOWHUFDWLRQ ZLWK DQ
LQPDWH +RVNLQV DOVR SRLQWHG WR 0DMRU 4XLVHQEHUU\¶V
WHVWLPRQ\WKDWPRVWRIWKHWLPHYHUEDORUGHUVWRSULVRQHUVZLOO
VXIILFHWRPDLQWDLQVHFXULW\VRWKDWSK\VLFDOFRQIURQWDWLRQLV
UDUH6HFRQG+RVNLQVDUJXHVWKDWWKHIDFWWKDWQRSK\VLFDO
WHVWLQJLVUHTXLUHGIRUWKHSRVLWLRQRIGHSXW\RQHLQGLFDWHVWKDW
SK\VLFDOUHVWUDLQWRILQPDWHVLVXQHVVHQWLDO
:HFRQFOXGHWKDWWKHHYLGHQFHSUHVHQWHGE\+RVNLQVLVQRW
VXIILFLHQWWRFUHDWHDPDWHULDOLVVXHRIIDFWRQWKLVLVVXH7KH
VXPPDU\MXGJPHQWHYLGHQFHWDNHQDVDZKROHUHYHDOVWKDWWKH
GHSXW\ RQH SRVLWLRQ H[LVWV WR VXSHUYLVH LQPDWHV DQG WR
PDLQWDLQVHFXULW\$OWKRXJKDGHSXW\RQHPD\EHUHTXLUHG
SK\VLFDOO\WRUHVWUDLQLQPDWHVRQO\LQIUHTXHQWO\WKHSRWHQWLDO
IRUSK\VLFDOFRQIURQWDWLRQZLWKLQPDWHVH[LVWVRQDGDLO\EDVLV
DQGWKHFRQVHTXHQFHRIIDLOLQJWRUHTXLUHDGHSXW\WRSHUIRUP

-- 11 of 12 --

+RVNLQVY2DNODQG&RXQW\HWDO 1R
WKLV IXQFWLRQ ZKHQ WKH RFFDVLRQ DULVHV FRXOG EH D VHULRXV
WKUHDWWRVHFXULW\6HH&)5SW$SS† Q
³7KH FRQVHTXHQFHV RI IDLOLQJ WR UHTXLUH WKH HPSOR\HH WR
SHUIRUPWKHIXQFWLRQPD\EHDQRWKHULQGLFDWRURIZKHWKHUD
SDUWLFXODU IXQFWLRQ LV HVVHQWLDO )RU H[DPSOH DOWKRXJK D
ILUHILJKWHU PD\ QRW UHJXODUO\ KDYH WR FDUU\ DQ XQFRQVFLRXV
DGXOWRXWRIDEXUQLQJEXLOGLQJWKHFRQVHTXHQFHRIIDLOLQJWR
UHTXLUH WKH ILUHILJKWHU WR EH DEOH WR SHUIRUP WKLV IXQFWLRQ
ZRXOGEHVHULRXV´ %ULFNHUV)GDW ³$OWKRXJK
DV%ULFNHUVKDVDUJXHGLWPD\EHWUXHWKDWD>@>EXV@DWWHQGDQW
>RQ VSHFLDO HGXFDWLRQ EXVHV WUDQVSRUWLQJ KDQGLFDSSHG
VWXGHQWV@VHOGRPLIHYHUPXVWSHUIRUPDQ\OLIWLQJWKHDELOLW\
WROLIWZRXOGEHFUXFLDOLQDQHPHUJHQF\VLWXDWLRQ´
+RVNLQVQH[WFLWHV+DPOLQY&KDUWHU7RZQVKLSRI)OLQW
)G WK&LU IRUWKHSURSRVLWLRQWKDWWKHPHUH
SRWHQWLDOWKDWDGHSXW\ZRXOGKDYHWRUHVWUDLQDQLQPDWHLV
LQVXIILFLHQWWRUHQGHUWKDWMREIXQFWLRQHVVHQWLDO,Q+DPOLQ
WKHSODLQWLIIZKRZDVDQDVVLVWDQWILUHFKLHIVXIIHUHGDKHDUW
DWWDFNDQGZDVDXWKRUL]HGWRUHWXUQWRZRUNRQFRQGLWLRQWKDW
KHQRWHQJDJHLQVWUHQXRXVSK\VLFDODFWLYLWLHVVXFKDVIURQW
OLQHILUHILJKWLQJ$IWHUEHLQJILUHGEHFDXVHRIKLVLQDELOLW\WR
HQJDJHLQIURQWOLQHILUHILJKWLQJWKHSODLQWLIIEURXJKWVXLWDQG
FKDOOHQJHG WKLV SDUWLFXODU UHTXLUHPHQW DV XQHVVHQWLDO 7KH
SODLQWLIISUHVHQWHGSURRI³WKDWWKHNH\IXQFWLRQVRIKLVMRE>DV
DVVLVWDQWILUHFKLHI@ZHUHVXSHUYLVRU\DQGDGPLQLVWUDWLYHLQ
QDWXUH DV GLVWLQJXLVKHG IURP WKRVH RI D ILUHILJKWHU ZKLFK
LQFOXGH KRXU VKLIWV EHLQJ WKH SULPDU\ UHVSRQGHU WR
HPHUJHQFLHV DQG HQJDJLQJ LQ VWUHQXRXV IURQWOLQH ILUH
VXSSUHVVLRQVHDUFKDQGUHVFXH´,GDW,IWKHDVVLVWDQW
ILUHFKLHIZHUHHYHUQHHGHGDWWKHVFHQHRIDQHPHUJHQF\WKH
SODLQWLII WHVWLILHG WKDW KLV UROH ZRXOG EH VXSHUYLVRU\ UDWKHU
WKDQDFWLYHHQJDJHPHQWLQILUHILJKWLQJ:HDIILUPHGDMXU\
YHUGLFWLQIDYRURIWKHSODLQWLIIUHDVRQLQJWKDWWKHLVVXHRI
ZKHWKHUIURQWOLQHILUHILJKWLQJZDVDQHVVHQWLDOIXQFWLRQZDV
SURSHUO\VXEPLWWHGWRWKHMXU\7KHVLWXDWLRQLQ+DPOLQLV
HQWLUHO\GLIIHUHQWWKDQWKHVLWXDWLRQLQWKHLQVWDQWFDVHIRUWKH
SODLQWLII LQ +DPOLQ SURGXFHG RYHUZKHOPLQJ HYLGHQFH WKDW
ILUHILJKWLQJZDVQRWDQHVVHQWLDOIXQFWLRQRIKLVVXSHUYLVRU\
SRVLWLRQ7KHTXRWHRQZKLFK+RVNLQVUHOLHVZKLFKLQGLFDWHV
1R +RVNLQVY2DNODQG&RXQW\HWDO
7KH UHJXODWLRQV SURYLGH WKDW DOWKRXJK DQ HPSOR\HH LV QRW UHTXLUHG
WR DFFHSW DQ RIIHUHG DFFRPPRGDWLRQ LI DQ LQGLYLGXDO UHMHFWV D ³UHDVRQDEOH
DFFRPPRGDWLRQ WKDW LV QHFHVVDU\ WR HQDEOH WKH LQGLYLGXDO WR SHUIRUP
WKH HVVHQWLDO IXQFWLRQV RI WKH SRVLWLRQ KHOG RU GHVLUHG DQG FDQQRW DV D
UHVXOW RI WKDW UHMHFWLRQ SHUIRUP WKH HVVHQWLDO IXQFWLRQV RI WKH SRVLWLRQ WKH
LQGLYLGXDO ZLOO QRW EH FRQVLGHUHG D TXDOLILHG LQGLYLGXDO ZLWK D GLVDELOLW\´
&)5 † G VHH +DQNLQV Y 7KH *DS ,QF )G
WK &LU )XUWKHUPRUH ³DQ HPSOR\HH FDQQRW PDNH KLV HPSOR\HU
SURYLGH D VSHFLILF DFFRPPRGDWLRQ LI DQRWKHU UHDVRQDEOH DFFRPPRGDWLRQ
LV LQVWHDG SURYLGHG´ +DQNLQV )G DW ,Q WKH LQVWDQW FDVH WKH
GHIHQGDQWV RIIHUHG +RVNLQV UHDVVLJQPHQW WR WZR GLIIHUHQW SRVLWLRQV
+RZHYHU XQOLNH LQ +DQNLQV WKH SRVLWLRQV RIIHUHG LQ WKH LQVWDQW FDVH ZHUH
QRW FRPSDUDEOH WR D GHSXW\ RQH SRVLWLRQ DV ERWK LQYROYHG D SD\ FXW 7KH
UHJXODWLRQV LQVWUXFW WKDW HPSOR\HUV ³VKRXOG UHDVVLJQ WKH LQGLYLGXDO WR DQ
HTXLYDOHQW SRVLWLRQ LQ WHUPV RI SD\ VWDWXV HWF LI WKH LQGLYLGXDO LV
TXDOLILHG DQG LI WKH SRVLWLRQ LV YDFDQW ZLWKLQ D UHDVRQDEOH DPRXQW RI
WLPH´ DQG VKRXOG RQO\ UHDVVLJQ DQ LQGLYLGXDO WR D ORZHU JUDGHG SRVLWLRQ
LI WKH LQGLYLGXDO FDQQRW EH DFFRPPRGDWHG LQ DQ HTXLYDOHQW SRVLWLRQ
&)5 SW $SS † R 7KHUHIRUH ZH KROG WKDW +RVNLQV¶V
UHIXVDO WR DFFHSW RQH RI WKH ORZHU JUDGHG SRVLWLRQV GRHV QRW DXWRPDWLFDOO\
SUHFOXGH KHU IURP EHLQJ FRQVLGHUHG D ³TXDOLILHG LQGLYLGXDO ZLWK D
WKDWDQHPSOR\HUPD\QRWGHQ\DQHPSOR\PHQWRSSRUWXQLW\WR
D GLVDEOHG LQGLYLGXDO EDVHG RQ D VOLJKWO\ LQFUHDVHG ULVN LV
WDNHQ IURP WKH SRUWLRQ RI WKH RSLQLRQ GHDOLQJ ZLWK WKH
GHIHQGDQW¶VFODLPWKDWWKHSODLQWLIIZDVQRWTXDOLILHGEHFDXVH
KHSRVHGD³GLUHFWWKUHDW´WRWKHVDIHW\RIKLPVHOIDQGRWKHUV
DQHQWLUHO\GLIIHUHQWLQTXLU\WKDQWKHRQHEHIRUHXVWRGD\6HH
LGDW
E5HDVRQDEOH$FFRPPRGDWLRQ
$VVXPLQJWKDWUHVWUDLQLQJLQPDWHVLVDQHVVHQWLDOIXQFWLRQ
RI WKH GHSXW\ RQH SRVLWLRQ +RVNLQV QH[W SURSRVHV VHYHUDO
DFFRPPRGDWLRQV WKDW VKH FRQWHQGV ZRXOG SHUPLW KHU WR
SHUIRUPWKHHVVHQWLDOIXQFWLRQV5HDVRQDEOHDFFRPPRGDWLRQ
PD\LQFOXGH³MREUHVWUXFWXULQJSDUWWLPHRUPRGLILHGZRUN
VFKHGXOHVUHDVVLJQPHQWWRDYDFDQWSRVLWLRQDFTXLVLWLRQRU
PRGLILFDWLRQRIHTXLSPHQWRUGHYLFHVDSSURSULDWHDGMXVWPHQW
RU PRGLILFDWLRQV RI H[DPLQDWLRQV WUDLQLQJ PDWHULDOV RU
SROLFLHVWKHSURYLVLRQRITXDOLILHGUHDGHUVRULQWHUSUHWHUVDQG
RWKHU VLPLODU DFFRPPRGDWLRQV IRU LQGLYLGXDOV ZLWK
GLVDELOLWLHV´86&† % :HKDYHH[SODLQHG

-- 12 of 12 --